MARKET NEWS

The pound strengthened against the dollar, rising 0.2% to $1.2967, as fears that president Donald Trump’s tariffs could spur inflation and slow economic growth put pressure on the greenback.

The dollar index (DX-Y.NYB), which tracks the US currency against a basket of other major currencies, has fallen roughly 3.5% this month. Currently, the index stands at 103.86, down 0.2%. Anxiety over impending tariffs on America’s trading partners has contributed to the dollar’s weakness.

Donald Trump said he would issue tariffs on “all countries” and threatened to impose levies on Russian oil.

Trump has promised a “Liberation Day” on Wednesday, when he is set to unveil reciprocal levies to address trade practices that his government deems unfair. Tariffs on car imports to the US are due to come into force on Thursday.

“You’d start with all countries, so let’s see what happens,” Trump told reporters onboard Air Force One, dashing hopes he might scale back some of the threatened levies.

Read more: FTSE 100 LIVE: Stocks drop as trade war jitters take hold

Analysts are concerned that these aggressive trade measures could stifle US economic growth and limit the Federal Reserve’s ability to cut interest rates, while simultaneously driving inflation higher in the short term. This combination of factors is expected to weigh on the dollar and could push the GBP/USD exchange rate higher in the near term.

"Recession risks have become elevated – to a 40% probability – on concerns that aggressive US policies hit business and household sentiment," warned Bruce Kasman, chief economist at JP Morgan.